The government will hold its conventional bond auction on 12-May, with an issuance target of Rp36tn and a maximum issuance ceiling of Rp54tn, unchanged from the previous auction. The auction will offer SPNs (1-, 3-, and 12-month tenors) alongside reopened fixed-rate series, namely the 4.9-year FR109, 10-year FR108, 14.3-year FR106, 19.3-year FR107, 28.2-year FR102, and 38.2-year FR105. Based on our incoming bids model, we expect auction demand to moderate slightly compared to the previous auction but remain relatively solid and comfortably above the issuance target. We estimate total incoming bids could reach around Rp72tn, or within a range of Rp67tn-77tn, compared to Rp75tn in the 28-Apr auction.
Demand remained solid; longer-tenor appetite continued to improve. The previous government bond auction on 28-Apr recorded relatively solid demand, despite persistent global uncertainty. Total incoming bids reached Rp75tn, broadly in line with our expectation of Rp65tn 75tn and well above the initial target of Rp36tn. Although slightly lower than the previous auction s Rp78.4tn, demand remained above the YTD average of Rp72tn, indicating continued resilience in the domestic bond market. Demand composition continued to be concentrated in the belly segment. The 4.9-yr FR109 attracted the largest interest with Rp34.7tn in bids (46.4% of total bids), although lower than Rp44.4tn in the prior auction. Meanwhile, demand for the 10-yr FR108 remained relatively stable at Rp9.2tn. More importantly, appetite for longer-tenor bonds (>14 years) improved significantly, with total bids rising by 75% from the previous auction to Rp19.8tn. This suggests that investors are gradually becoming more comfortable extending the duration amid improving bond market sentiment and stabilizing global conditions. On the short-end, SPN demand remained relatively stable at Rp11.2tn compared to Rp12tn previously. From a flow perspective, offshore participation remained supportive. Foreign incoming bids reached Rp13.4tn, still well above the YTD average of Rp8.6tn, while awarded bids totaled Rp6.3tn, indicating continued foreign interest in INDOGBs despite ongoing global volatility.
Slightly higher issuance with rising cost of funds and longer duration. In the government bond auction held on 28-Apr, the government issued Rp40tn, above the initial target but slightly lower than the previous auction s Rp42tn. The weighted average cost of funds increased to 6.47% from 6.24% previously, while the average tenor extended significantly to 10.5 years from 7.4 years, reflecting stronger appetite for longer-duration bonds. Year-to-date, total gross bond issuance has reached Rp651.2tn, equivalent to 41.5% of the FY2026 issuance target.
From the investor breakdown, onshore banks remained the largest participants in the primary market. Based on DMO data, domestic banks absorbed Rp14.4tn or 36% of total issuance. Insurance companies and pension funds ranked second with Rp11.6tn (29.1%), followed by Bank Indonesia at Rp5.6tn (14.1%), foreign investors at Rp4.7tn (11.8%), mutual funds at Rp1.9tn (4.8%), other investors at Rp1.2tn (3.1%), and retail investors at Rp0.5tn (1.2%). On a year-to-date basis, onshore banks have consistently remained the dominant buyers in the primary market, with cumulative purchases reaching Rp143.2tn or 46.5% of total auction issuance.
Investor breakdown: Onshore banking institutions remained the largest participants in the primary market. Based on DMO data, we estimate that domestic banks remained the largest net buyers in the conventional bond auction held on 28-Apr, absorbing Rp14.4tn or 36% of total issuance. Insurance companies and pension funds ranked second with Rp11.6tn (29.1%), followed by Bank Indonesia at Rp5.6tn (14.1%), foreign investors at Rp4.7tn (11.8%), mutual funds at Rp1.9tn (4.8%), other investors at Rp1.2tn (3.1%), and retail investors at Rp0.5tn (1.2%). Furthermore, on a year-to-date basis, onshore banks have consistently remained the dominant net buyers in conventional bond auctions, with cumulative purchases reaching Rp143.2tn, representing 46.5% of total bond issuance through auction.
Meanwhile, including the secondary market, domestic investors continued to dominate government bond absorption, led by insurance and pension funds (+Rp85tn), Bank Indonesia (+Rp66.4tn), and other investors (+Rp64.5tn). Mutual funds and retail investors also recorded net inflows, while foreign investors remained net sellers with cumulative outflows of -Rp13.3tn YTD, based on DMO settlement data as of 7-May-2026.
Demand likely to moderate but remain above target. Based on our incoming bids model, we expect demand in today s conventional bond auction to moderate slightly compared to the previous auction but remain relatively solid and comfortably above the issuance target. We estimate total incoming bids could reach around Rp75tn, or within a range of Rp70tn 80tn, broadly in line with Rp75tn in the 28-Apr auction.
Several factors should continue to support auction demand: 1) Domestic liquidity remains ample. Bank Indonesia s data show that excess banking system liquidity is projected at Rp72.2tn as of 11-May. In addition, although there are no major bond maturities this week, scheduled coupon payments totaling Rp35.7tn should provide additional liquidity buffers to absorb incoming supply. 2) Secondary market conditions have improved. Compared to the previous auction, benchmark government bond yields are now around 12 bps lower on average, allowing investors that secured bonds in the last auction to potentially realize gains and re-enter today s auction. The main downside risk comes from the rupiah depreciation against the USD ahead of the auction, which may lead to more cautious foreign participation during today s auction.
We forecast the fair yields for the bond series to be auctioned today as follows: 5.65% (range: 5.60-5.70%) for the 1-mo SPN, 6.15% (range: 6.10-6.20%) for the 3-mo SPN, 6.40% (range: 6.35-6.45%) for the 1-yr SPN, 6.67% (range: 6.62-6.72%) for the 4.8-yr FR109, 6.72% (range: 6.67-6.77%) for the 10-yr FR108, 6.78% (range: 6.73-6.83%) for the 14.3-yr FR106, 6.80% (range: 6.75-6.85%) for the 19.3-yr FR107, 6.88% (range: 6.83-6.93%) for the 28.2-yr FR102, and 6.92% (range: 6.87-6.97%) for the 38.2-yr FR105.
